Transcripts For BLOOMBERG Bloomberg Surveillance 20160824

The earthquake in general because in 2009 was the last earthquake and also we have to look at janet yellen and the huge impact we see in markets. Tom certainly francine it is an ancient story for italy. Francine it is. Lets get to the bloomberg first word news. Heres taylor. Taylor turning small mountain towns into rubble. As many as 100 are missing. It was centered around 27 miles from the town of rietti. Rescue crews are searching for anyone who was 2r57ped. The first offenses against targets in syria. To bomb islamic positions near the city of ahe willo. And clearing Islamic State forces and last week a suicide bomber killed more than 50 people in turkey. North korea has successfully launched a missile. Kim jong ills forces are engaged in their annual war games. South korea says the missile flew several hundred miles of japan. And the labour partys leader said he blocked the Brexit Process and voted against any attempted trigger unless the rime minister agrees to hold a vote on the new issue. A new report says many donors of the Clinton Foundation while she was secretary of state and more than half of the outside gave money to the Foundation Clinton calls report a degrees torted portrayal. And more than 120 countries im taylor rigs, this is bloomberg. Tom . Tom thank you, taylor. Chair yellens speech in jacksonhole, thats about as boring as it can get with oil churning off of a threeday very tight trade. If you would. Looking at 210 spread, dominick will join us in the next hour. Thrilled to have doment con stan with us and all in all a turn to markets. Francine yes. I wanted to down 8 . All about jacksonhole, and you can see thats also having an impact on the dollar. And 100. 19, tom. Tom i want to read the bloomberg chart from yesterday. With James Glassman of j. P. Morgan. Forget about negative rates or orthodox, a new Theory Financial stability. This is jobs. This is the employed in america, not population adjusted. The green line is a slope of the good times, and if you take our collective memory and extrapolate it out thats the gap. Thats the challenge every policymaker and president ial candidate has. That gap is jai normous. Its 1520 and 30 million of 25 54yearold both sexes employed. Thats the slack from another time and place. Francine . Francine yes. I really liked that. Tom. Its linked to the feds but i wanted to show you the market correlation. This is an interesting chart showing returns are really starting to move in tandem. Tom yes. Beautifully. Francine so the blue line is one of the many side effects of excessive Monetary Policy is that investors need to operate in a market in which diversification is much harder, so you can see that diversification move hand in hand. So our chart of the quarter. Thats what we talk about day in and day out, tom. Richard kochinos, great to have you here. Richard thank you, very much. When you look at pairings and pairings and currencies, how much is it Monetary Policy driven and how much of sit actual growth . Richard i think most of it you touched on in your last chart. Its irrespective of equities, and any class youre looking at. Really in the better part of the last four or five years has currency markets and miami like tradeoff longterm correlations really questioning whats going on here. Francine what is going on . S it all just cheap money . Richard predominantly now its been a yield and one of the reasons you have equity outperformance and why you have curve flattenings and the aussie dollar and kiwi dollar and to a certain extent, thats big story and then the main story we are facing at jacksonhole, its the shifert whether its there or not. Tom i havent done this in ages. This is synthetic euro back 40 years. Years ago. You take an inverted Deutsche Mark and insert it there. The blue line is parity and the average and where they were the yellow line at 116 are remarkably close. I would suggest, richard, that the pricing of the euro has the a big success, or does euro demand a weaker currency . Rit67ed when it comes to europe, the question is whether we are looking for more growth or stability . Why it cant weaken anymore from here, the dollar, is that youre stuck with surpluses and thats one of the main arguments where investors were short euro in 2014 and 2015 and the surpluses kind of continued with the pressure on it but even though European Data has been over q 2 and q 3 we are starting to see instant ever assistances where its starting to break down and ultimately is the euro going to be the solution . Maybe, maybe not but its got to be a part of the solution Going Forward but short term probably you get some pressure on the euro dollar but its a difficult currency to buy because that certainly doesnt help out on the monetary side. Tom well, our theme through the morning is Financial Stability. Richard its overlooked a little bit by the market. It came to the forefront when you had the european banks under pressure and if market was really starting to consider it but the market is focusing on the risk Going Forward and its something that both as the italian referendum but under 2015 votes so, currently Financial Stability now is fairly low. You can see that across the curves but youre beginning to see it in port geese and italian bonds. Tom our theme is two days before jackson hole, the speech. Much more interesting on jackson hole and on the greater economics and rate markets, dominique con on the of Deutsche Bank our entire 6 00 hour. This is bloomberg. Francine welcome back to bloomberg surveillance. Im Francine Lacqua and tom keene is in new york. I know you have a chart so iceland cutting its rates for the first time in months. If we remind ourselves our friend iceland like a lot of friends in the emerging markets. It went through a default a couple years back and actually raised rates three times and now you can see the reversal because of currency swayings. But a lot of them did the same, raising rates then having to reverse them earlier this year. Tom yes. Lets go to Richard Cochinos right away. This is one of those flappings that they dont near jacksonhole. Central banks have to adjust, dont they . Richard they do. And theres been a significant appreciation. And ooh lot of that is if you look at the yields on the currencies, its high. So its actually just going after yield at this stage and now you see the central fwivepk a certain extent reacting to that. So thats a very important point because the g8 is coming up and theres the thought no one is going to be engaged in the early activation. But to a certain extent, if youre in an environment where everybody is stuck at the lower bound, anybody stuck there tends to be and the Central Banks are being forced to move. Tom francine, jump in here, because youre much better at this that afternoon i am. This is euro iceland i think with a massive collapse and the courage of the icelandic system with the courage to fix the shot and theres that krone err strength rolling over stronger and stronger and stronger today. But butting so much against scanned naveya as well. Francine yes. Tom, look, remember, it comes at a time where the lost capital controls are in the ocess of being dismantled in iceland and we had a communication with the Icelandic Bank where especially if you look at tom keenes chart and this is inspite of you can see its a central bank thats going through a tough time and we will have plenty more on iceland in a moment, tom. Tom richard, before we get to glencore, this once again proves janet yell nch and the central bank to the world. How can she raise rates when someone as distant as iceland says, no. We have to survive . Richard thats basically the 1 million question going into friday. If you look at the bottom lines coming out of them, its difficult to be a central bank alone and to go it looven anymore. Thats more policy and communication. Thats important Going Forward so the u. S. Tends to be better off if the raiding partners are better off as well. Francine profits fell 66 at glencore. Glencore was hurt by lower prices in metals and covering European Mining metals, lynn, great to have you here. If you look at glencore, so basically its a 66 drop but they beatest mats. Shares have rallied because they managed to cut debt. Yes. And at the end of the day you cut costs but youre still operating in the environment with lower commodity prices, and were not really seeing much of a turnaround there, i think it remains a tough icture for this company. Francine is there any up side . Its almost telling the world look, we need to stabilize zinc and i know its not copper but actually the price of zinc rallied. Yes. Its the unusual one. You just dont see this with commodities right now. Think think they have made significant steps and you saw a big gold sale today. But you know, i think theres still a lot to be done for you to see a real turnaround. And to make it profitable again. Tom lynn, the rap on glencore is theres 38 people trading back and forth and thats not reality. This train wreck is 160,000 employees. Is it a Mining Company . Do you compare glencore to rio tinto or is it something truly different . Lynn i think most people think of it as something different. Its part mining and at the moment mineing is really carrying the business. In the last half the Mining Division less money and is likely to continue to struggle. Francine ok, lynn tomas, thank you. Richard stays with us. The bloomberg lp nonexecutive director at glencore. Now, coming up, weve plenty more on this iceland move after the three increases last year. Iceland has cut its rates and that has to do with gains in krona and we have more in the next hour we speak with paul gates at 6 00 a. M. In new york, 11 00 a. M. In london. This is bloomberg. Francine worldwide this is bloomberg surveillance im Francine Lacqua in london and tom keene is in new york. We need to talk a little bit about employeeo politics. The u. S. Vice President Joe Biden has arrived after a coupe attempt. When you look at everything thats going on in turkey, so 2007 Vice President there and theres talk about an extradition and there was that failed coupe. Allegations flying about who actually started it and then you have turkey dealing with the huge iciss bomber, whats the relationship between europe, the u. S. And turkey right now . I would say theres something of a parallel between the u. S. And turkey relations, theres a lot of noise regarding both but the fundamentals will remain until tact because both parties need each other regardless of the deterioration. I hit the its clear the americans are treating this as a judicial not political process and the government, hink in there havent produced the i think bide season there to sooth over relations and with the recognition speaking hawkishly about the americans there in do 34estic consumption. Francine so trying to gain more and more power there, have been parallels made with putin. So does europe need to be tough on one hand but make sure the the iminvestigations hold . Yes, whats happening in berlin and not broadly but specifically and the line is clear, anything short of the death penalty, merkel will turn a blind eye. So all the things i think germany is going to turn a behind eye and i think they think it has utility and they want to make sure it remains intact and they are going to set the bar very, very high before they jeopardize the integrity regardless of whats happening in turkey right now. Tom and i find it remarkable that they are are the two linked . I think its designed to help the fight against iciss and puts turkey in alliance with the americans and you and i both know is the real point o prevent the kurds to british a but the initial narrative is that this is to help the Free Syrian Army in the fight against iciss. Tom at the end of lawrence of arabia where lawrence goes nuts about the borders of the middle east, do you think turkey will acquire more territory for itself, do they need to move their boarders south to provide protection against frackchouse elements . I think thats unlikely, but i do think in a context where youve seen the purges to the Security Intelligence and seen a real undermining with the ability to deal with the pkk within turkey, they are very, very concerned about developments in turkey because that has a complete domestic play with the pkk which is why they are very focused, but i dont think it changes per se. Tom and francine, we are guilty or i should say i am guilty to have we look at france and its big news, the terror attack over the weekend was absolutely horrific and you question how a nation must respond to that. Francine tom, i must agree and theres been a lot of fault against western media in not taking it seriously enough and this was allegation a very young suicide bomber. And we will get back to what we understand about Islamic State right now, tom. Tom yes. We will do that coming up here. A busy hour. In the next hour dr. Dominic konstam will be on and he has written a brilliant note the path forward for federal banks. Dominic konstam goes jacksonhole. We will do too that in our next hour. This is bloomberg. Hey hows it going, hotcakes . Hotcakes. This place has hotcakes. So why arent they selling like hotcakes . With comcast Business Internet and wifi pro, they could be. Just add a customized message to your wifi pro splash page and youll reach your customers where their eyes are already on their devices. Order up. Its more than just wifi, it can help grow your business. You dont see that every day. Introducing wifi pro, wifi that helps grow your business. Comcast business. Built for business. Tom good morning, everyone, bloomberg sursurks Francine Lacqua in london and im tom keene in new york. And of course were following the earthquake in italy. Taylor . Taylor yes, at least 21 people ve been killed, the 6. 21 magnitude earthquake has destroyed smaller towns, search and rescue are searching for survivors and radio and sad lite links have been damaged. And russia president Vladimir Putin will pete with leaders of france who accuses the ukraine of attacks and the ukraine accuses russia of supporting rebels in the region. And a shift in the defense paul it has maintained for more than six decades and to carry out missions overseas. Troops will take part in the u. S. Peacekeeping in addition sudan and will be allowed to use as other nations come under fire and in the past they have only been allowed loued to shoot. By rding to a memo obtained the news they say the lockheedmartin contract is still rideled with inconsistencies. They will have to decide whether to put the jet into full production. And more than 120 countries, im taylor rigs, this is bloomberg. Tom . Tom thank you. One of the back stories looking forward to Janet Yellens speech on friday is the dollar. She a slave to the dollar, to the movement of the dollar . The idea that chair yellen whatever she wants didnt want a strong dollar . Richard cochinos is with us and also helping out on International Relations particularly advantageous to have mitch here with the earthquake in italy. Richard, i look at the dollar and the assumption that what we want at any cause is stability. Can we have a strong dollar that is not a brutally strong dollar . Richard i think so. I think you can end up with that in the g 10. In emerging marks, its much less clear in my mind so it rem depends on the currency we are talking about in the currency group. The main thing is the investor positioning which we already think is in the emerging markets in the past week and perhaps in the pound sterling that if you get a much stronger dollar there, thats basically going to be kind of an issue and thats going to be something which galvanizes other movements and investor flows as well. Tom all of our staff is wearing Banana Republic this month because you question whether the United Kingdom is going to be the next Banana Republic. If you get the next call, is that discreet to the United Kingdom or does that have knock on effects . Richard for the same reason equities and currencies, you cannot have a move like that and not have it affect currencies as well so to answer that yes, it will affect the euro and any of the other major currencies as well. Francine so i dont use that phrase very often. Its a small state but politically unstable, ouch, tom, its a little bit hurtful because of the capital but what does the u. K. Actually export . Finance. Of the the brexit. [laughter] francine but does the weaker pound mean the u. K. Is less politically strong . Regarding what the government is going to do on fiscal paul , i think the e. C. B. Also in september is going to move towards stimulus. The big question from our perspective is whats happening on the fiscal side. Is this an opportunity for germany to rethink its stance on fiscal paul . The answer to both is no, but thats how id say it works with the economic risk. Francine and brexit is no longer an excuse not to hi grate . Richard i think if you get weaker u. S. Data and you dont ee pressures emerge into q three and q four, its not an excuse to not hike rates its just not an excuse to not hike rates now. So the markets not sure, maybe, maybe not a hike will take place in december. If it takes place in q1 instead of q four, thats not the end of the world in a policymakers perspective. Francine if youre janet yellen tore next president of the United States, i know we havent had great stress because with brexit and only 12 months ago, the state of play is one of its stabilities that is masked by something that could happen thats a lot worse than whats been talked about. Yes. But thats a medium problem, the big concern we have is of course with regards to italy and political stability there because thats not simply a problem with italy but all kinds of spillover risks with the area, the workout with greece has been far from ideal. If italy wants to come into play in a political way, it would really question the ability and willingness, merkel to deal with that problem in a ystem atic and sensible way. Tom its 58 to euro. Bring up the chart, anthony, if you would and you can really see our home on the range. I mean, we have been range bound, range bound, range bound. Midge is pulling in International Relations here, what does Angela Merkel want from chair yellen in terms of dollar dynamics. Richard i think the simplest thing is stability more than anything. You touched on it earlier and a lot of the questions i get from the clients is why has the euro been so stable . We know the risks are significant and we can talk more about those but what it comes down to is you ever got a surplus country and outflows through an investor talent. So you have your current account surplus and because of the monetary paul of the ecb at this stage and neither has been too significant so far one way or the other, and i think if paul doesnt change what you really need is a shift to the economic outlet meaning a shift to the outflows meaning you will get more inflows which is one of the reasons the investors will be getting a higher euro or the surplus decreases. Tom fascinating and of course it leads up to the debate of jackson hole are no question about it the dollar will come up as well. We will cond with Richard Cochinos here of citigroup. In the next hour, david mail pez, Economic Advisor to candidate donald trump. We will talk to david about trump economics. From new york and london, this is bloomberg. Francine this is bloomberg im Francine Lacqua in london with tom keene in new york. Taylor . Taylor handing bonuses to 25,000 workers after posting a record annual prombingts qantas lassaction lawsuit accuses hewlettpackard of age discrimination claiming they fired tens or thousands of workers who were 40 or older and replaced them with younger workers. Hp is denying that. Nd followed by tourists from the uae,saudi arabia and russia and china and shopping in the u. K. Rose 7 and the post brexit slide cost foreigners. Thats your bloomberg business. Francine using 14day reverse repurchase agreements, its the first time they have auctioned the contracts amongst speculation china is trying to cool a bond rally. For Bloomberg Intelligence we are joined from beijing. Tom, were also hearing china is imposing a cap on lending and this is trying to curb the lending risk. What does this tell us about what china is trying to do . So the big issue, francine, is that china attempting to clamp down on Financial Risks without stifling the recovery in the real economy. Thats why we are seeing the pvac making this move to raise funding costs and cut off the source of leverage going into the bond market. Thats also why we are stheegs new controls over finance. Francine does that mean it wont become uhlier or that they are seeing something thats actually bigger than we think . I think certainly, given the experience with the equity market last year, chinas regulators are very well aware of the risks of letting these bubbles go out of control. The risk, francine is that even very minor steps to temp down on these Financial Risks do real aving spiraling or a impact. That is what we saw when a very light tap on the brakes caused the market to come tumbling down. Francine we are two days from jackson hole and that allimportant speech from janet yellen. How does she view this . Again by not as much as we saw just 12 months ago . You know, i think china is going to remain a big issue for the fed, but if we think back six months ago when the equity markets were collapsing and the yuan was really scaring global markets. Thats when china was really at the top of the agenda for janet yellen and the fed. Fast forward to august and capital flows are much more moderate. The yuan is more stable and the markets are more stable, so yes, i think China Remains a big concern but not at the top of the list of issues for janet yellen. Francine thank you, tom. Richard cochinos of citi, what does that tell us about china . A huge economy. Difficult to transition it. Richard right. I think its a very proactive paul on chinas part and youre right that 2015 was really the concerns over volatility whether it was the equity markets or currency and they have manage tolved gain a large control or handle on that and good at maintaining that Going Forward so again it seems to be a good paul for me Going Forward with china and as long as thats taking place under a managed rate, i think they feel fairly comfortable with it and i think that gives confidence to other Central Banks around the world. Tom it gives China Confidence but how stable is the house of cards in china . Richard well, so far their capital controls have been fairly effective and you can e this in terms of how the remembre has moved. As long as they are injecting confidence, thats enough to hold up investors at this stage, and thats one of the main things, one of the side lessons that we might be able to take out of jackson hole. What im looking for is how much confidence and guidance are Central Banks and paul holders going to try to inject in the market just noird maintain this stability. Tom but villain boweder and your great work and all. Is china part of the discussion or are they so original in economic and Financial System that they are really almost outside the jackson hole debate . Which is it . Richard i think to a large extent they remained on the outside up until this stage. And i think the world would like to bring them in more, certainly bringing them into the fdr basket and wanting to see more stability in their markets is bringing them closer to the table and into the fold but it is that they remain outside however, i think the importance of the remembre and volatility of that has brought everybody closer together. I think thats where we sit currently right now. Tom richard, thank you so much. Richard cochinos from citigroup and we are going to try to get our phone systems worked to the tragedy in italy. Futures up one. Francine and i looking at the london and new york, this is bloomberg. Francine bloomberg surveillance im Francine Lacqua with tom keene. We have to get more on this earthquake. Taly has been rocked bay 6. 2 magnitude earthquake. This is in the center of italy where there are small and remoat towns, our correspondent is on the ground and traveled first thing when the earthquake happened and joins us on the phone ahead of the european ractice in your asia, ales sandra bring us up to date. How many buildings are left standing . In the very center of this 2,500 people, the stoun completely destroyed. This center is basically a pile of rubble and you can see the survivors because you can see the dust still on them and their shoes and on their car and in their hair. Its different from the earthquake of 2009. It was a big city. This is a bunch of small towns that have been basically destroyed. Francine italy is prone to earthquakes because its on a seismic line, what kinds of research and rescue operations are you seeing on the ground . Fortunately, the towns are not completely cut off. You can see a mountainous regions and some of the bridges are not looking good. We see cracks in the roads. But actually all the towns are reachable so you have a Civil Protection agency coming in and we see helicopters. It is somewhat easier because sheer numbers are not what they were in the 2009 earthquake. Francine have you felt aftershocks . Yes. There are definitely aftershocks, not as strong as the first but unnerving when youre in the town with the ground already full of cracks. Known t do earthquakes italy . We know in japan and they have been there but what does this earthquake mean for the people of italy . Its different because they build seismic housing. Here its not as common and although italy has had a lot of earthquakes, they havent had them as violent or strong. So the people have always managed. And talents fact that the buildings that went down today many of the buildings were from the middle ages, many from the renaissance so they sort of live with the earthquakes. But who knows . If this keeps up in the future, they may have to rethink their whole strategy towards earthquakes, because its been more often. Francine my parents are italian, i remember going on there you would was a trip canceled to italy. It feels uncomfortable talking about the political of what comes next, but how does he need to deal with this . In the short term it clearly creates a platform for him, i imagine he will be all over this disaster and we will see him with a hard hat in the region today looking very active and visible and i think he will try to use this to his political advantage given some of the challenges he faces in october. Now made dwroum longterm what typically happens in italy is this ultimately becomes a liability as far as leave and disaster. Lee. In t affects the vote october and mid november. Francine we are getting pictures where theres a search and rescue operation. We dont know how many people really are trapped under the rubble. You say that search and rescue and these exinds of operations are not italys fortavement do we know if they have learned anything from the massive earthquake in 2009 . Given how long ago it was, i would say probably not. Shortterm ehe receives a potch layerty boost using this as a popularity boost. Tom i dont mean this as a smart alec question but within the challenges of italy and now this tragedy as well. Italy a rich country . Northern italy . Yes. Southern italy, there are large die very intelligence cris that have been a big economic problem for italy historically. I think theres a broad recognition with Angela Merkel and the french and others that renzi is the single last bet as it were to try and create space certainly on the fiscal side that will help drive prosperity, because if you dont do that with italy, youre going to be facing a pump more fractured political situation that will be francine is italy worse in class between the banks and fiscal spending and the fact that a lot of labor reforms have not been passed through . Richard i would say its in the lower quarter of the class. And its under pressure. 23u look at the recent data, youre seeing its starting to pick up and look better. France is doing ok but italy, everything is falling below their sixmonth moving averages so the pressure is beginning to increase both on the fiscal and financial side and stability side and even on the economic side, so it does become i think a focal point for europe and euro and where we think of valuations. Tom wonderful. Smart, smart hour. Richard cochinos of citigroup. Thank you. Important to have you with us here today. Our next hour we are thrilled to bring you Dominic Konstam of Deutsche Bank. He has a detailed, interesting, at times scathing note on the fed and jackson hole and David Malpass will join us. David malpass on his support of trump economics. From new york and london, this is bloomberg. Tom the Federal Reserve is not data dependent. Janet yellen must reveal. In this hour, dominic ksi trump . In this hour, David Malpass on his grand beleaguered party. Dont right off london yet. This is bloomberg surveillance l;ivive in new york. Wednesday, august 24. A distracted Francine Lacqua i n london. Mr. Renzi will speak at some point. Francine we understand he will speak from the president ial palace in rome. A politicalhis as platform. They are still trying to extract people. There is a huge search and rescue operation going underway on the earthquake. But there is a linkage between politics in this disaster. Tom how removed is umbria from the italy that american tourists know, and milan and romse . E . It is in the center of italy. A lot of people are at the beach. It is a part of italy that not a lot of tourists know because it is in man. Townsve a connection of that are around 20003000 people large. That is the effective it may be more difficult to reach these towns but it also means you do not have mass scal e deaths. Tom an update. Lets go to first word news on italy. Taylor ill recap those headlines. Rockedth clarquake has central italy. 37 people were killed. As many as 100 are missing. The earthquake had a magnitude of 6. 2. It was centered 27 miles from the town of rietti. Rescue crews are searching through destroyed buildings. Turkeys military has started its first offensive against Islamic State in syria. Turkish planes joined with Coalition Air is to bomb Islamic State divisions near aleppo. Tanks crossed over the border to clear out Islamic State forces. U. S. Forces operations are offering support to turkish troops. North korea has successfully launched a missile from a submarine. Kim jonguns military conducted the tests and south Korean Forces are engaged in annual war games. The missile flew several hundred miles towards japan. Report says many donors for the Clinton Foundation met with Hillary Clinton while she was secretary of state. A according to the associated press, more than half the people outside government who met with clinton during that time gave money to the foundation. The Clinton Campaign called the report a distorted portrayal. Global news 24 hours a day powered by more than 2600 journalists in more than 120 countries, this is bloomberg. Tom lets get to the data check. The ideas of a futures flat, 10year yield. Oil in at 47. 30. On to the next screen. The vix showing a better than good equity markets. Thats francine thats my lo ok. 79 basis points. Excuse me, im confused. Similar we have a very data check. I wanted to put in the south korean won. The won has weakened a touch after we also had some north conducting missile test. The rest, it has to do with janet yellen and emerging markets down 1 . You can see european stocks up a touch. Tom i also notice the action by the Iceland Central Bank to the realities of deflation in europe and disinflation as well. Now lets get to the bloomberg. I want to redux this. The great unspoken of jackson hole jobs. This is the employed through the last 5060 years. The we have had flat employment in the United States for over a decade. Re. That is remarkable statement. Francine . Looking atom, im the side effects of Monetary Policy. This would be the side effects of what janet yellen may or may not do here till the end of the year. This is the picture. In blue, the barclays total return index. In white, the white line is the msci world index. We are looking at stocks. Basically what this tells us is that they are moving in tandem. What this shows us, and put a perspective into the fact that investors need to operate in a diversification is harder to achieve because of Monetary Policy. We had to chart it. Tom very good. Thanks so much. This is a real pleasure and always a pleasure two days before jackson hole to speak to Dominic Konstam. Out of cambridge and oxford, he melds together economics and rate dynamics like no one on global wall street. Financial stability, Financial Stability, Financial Stability. Where we . Where are we . Things are pretty stable from the Historical Perspective of the crisis. Things are pretty good from a more recent perspective. Some of the former fed officials every about, excessive lending and credit standards dropping. But there is a new Financial Stability concern that seems to be emanating from some fed officials regarding the low for long. The idea that if rates are low getting you end up investors going into other Asset Classes and making them excessively rich and vulnerable to downturns. Global thermometer by the international uses is invented by michael rosenberg. Bring it up. This is the Bloomberg Financial conditions index. You can see the crisis. This is standard deviations. What youre talking about is that little rollover within what chairman greenspan would call a quiescent environment. What would be the catalyst to knock us off our stability towards instability . Dominic well, there are obvious catalyst such as we get shocked by inflation being higher and the idea that Interest Rates are supposed to be low for a long time. Need to adjust quickly. Tom are you predict a net . Dominic not at all. The fed has given up on predicting that as well. The concept of where the neutral funds rate is. Tohink we can be prone minishocks, whereby this hunt for yield and financial repression, in Asset Classes, they may have to take a breather. They way they take a breather is the fed says maybe we need to raise rates. Tom in all my reading, whenever i see the word hope i circle it. Hope is a good way to lose money. Lent is the hope of chair yel issue tries to calm the world at jackson hole . Dominic i think that some people feel that her hope is she can do what they call immaculate tightening. The idea that there is some neutral funds rate and may be lower than they wanted to be, but they can somehow get there with minimal disruption which will therefore have a very limited impact on the economy. The real hope, by the way, as she gets some politicians doing some fiscal policy. Tom that would be a hope. Francine it would be a hope. But were doing a search on the keywords used certainly of the news items and fiscal policy has been used more than 2009. I wonder whether on fiscal policy, they can only but disappoint. Dominic well, theyve definitely been disappoint. It is very the trouble with fiscal policy as we are looking for preemptive fiscal policy and historically, fiscal policy is not preempted. It reacts to a problem pretty go through recession and then you react. Weve always argue this is not a classic, the u. S. Going into recession, this is stagnation. A disappointing growth trajectory. And because of that, the financial repression is driving up asset class prices and colleges do not see the urgency. They think the stock market is soaring. If you are at full employment, what is the point . That is the problem. They are not doing anything. Francine how much do we understand what centralbank polices are doing to shape the future . We talk about asset bubbles, i want to be more diplomatic. And talk about price distortions. Dominic well, i mean, i actually do not think prices are distorted in the sense that i ff you financial pressure means real Interest Rate are super low. If you look at the context of very low real Interest Rates, then you can justify all lot of the active price valuations being super low. We do not really know why really just rates need to be so low for so long. Everyone talks about demographics and global savings plots. In the grand scheme, i do not even think necessarily temporary betortions it may well part of the equilibrium, you get used to what would appear to be very expensive asset price valuations. 8 pages longs rae and they feel like they are 40 pages. Here is a chestnut from konsta s s lecture. The thinking is the recognition that the market has consistently disagreed on the feds expected path for rates and so far has been proven correct. The bond vigilantes are winning. Dominic we. Are. Tom what does chair yellen not get . Dominic to be fair, i think she does get it but she is running a board, and a lot of those people on the board dont get it. She is trying to bring it it along with her. Jackson hole will be interesting. To what extent does she underwrite some of these rumblings about the needs to raise rates sooner than the market currently expects . I think if there is any sort of members,er the board or committee members, the other issue is that they can bring down those longterm dots quite significantly still. They still have 3 of longterm dots. Down a, they can come lot and allow them to maybe push forward on the path of getting to a lower rate more quickly. Tom we are going to take a snapshot with Dominic Konstam. A kinetic look at the dots charts. That is for your morning consumption. Also, Dominic Konstam on the repression he measured for each and every one of you. Coming up, talk about repression and mining. Joinencore, paul will us from Sanford Bernstein on this amalgamation of trading and mining. From london, from new york, this is bloomberg. Tom, we have to talk more about this devastating earthquake. A very powerful earthquake hitting central italy in the middle of the night. These are live pictures. You can see some of the destruction. Smalldestroyed a mountain town. We understand now there are 37 people dead. He search ande, t rescue operation is still underway. This happened about i would say 8 hours ago. The primeat renzi, minister, was meant to go to paris. He is about to address the nation in the next couple minutes. What will we be looking out in terms of the tone . Enzis going to try to demonstrate that the government is in control, that they have the situation under control and demonstrate concern for citizens that lost their lives and the families whose lives have been affected. I do think at the same time, renzi is going to try to make hay out of this incident. I think that is with a view to the constitutional referendum he will be facing in october. This is ultimately an opportunistic government. It tries to use both internal and a struggle offense to advance its massive political agenda, the constitutional reform referendum which will take place at the end of the air. Everything he says and does should be interpreted through that lens. Francine italy, does it have the resources it has the resources does it have the capability of dealing with a big earthquake . Anrenzi used brexit as opportunity to advance the discussion on fiscal space. I think he will use the earthquake again as an opportunity to make that argument. They need to demonstrate they have fiscal capability to spend and deal with both internal and external shock. Renzi will frame this and similar ways. Tom help me here with italy, the meetings forward in the september end of september. Does italy come from a point of strength . I honestly do not think so. The big decisionmakers at the european level are, of course, thegermans and then whot germans agree they are going to consult with. Their our consultations that will take place at italy. Is fairlys agenda defensive. What they want to do is make sure that they are given more fiscal space. I really met for the first, second and 3third view of this government. It helps renzi because it allows them to buy off constituency in the runup to the vote,. His government and increasing the likelihood that the referendum is won. The broadly, he needs economy to recover. In China Economy has not been performing for a long time he he Italian Economy has not been performing for a long time. Able to for hi mto be do that, he needs more fiscal space and germany is critical to that conversation. Francine think you so much. We are waiting the Prime Minister to speak to the nation. Thank you so much. Italy hit by this powerful earthquake in the middle of the night, burying victims in mountains of r we are seeing pictures of collapsedubble. We are seeing pictures of collapsed buildings. 37 people are dead. This is bloomberg. M bloomberg surveillance lets do a quick data check before we get to an important discussion on mining. The vix 12. 35. A flattening yield curve. Dominic konstam of Deutsche Bank has been absolutely brilliant on sluggish data over the last, longer than six months. Francine lets talk about glencore. First half profit fell 56 . The Commodities Company was hurt by lower prices for metals. The Senior Researcher there and with Dominic Konstam of Deutsche Bank. Glencore is a dead story and they have managed, theyve cut down debt so much. It is partly that. Key commodities that have helped, despite the point you make about coming down from the highs, commodities like zinc h ave also done very well. Just over the last few months. But, of course, as you say, the bigger part of this has been a reduction in that debt. That is across some of the other mining names, anglo american. The scale and the speed with each glencore has been able to manage that is prodigious. Nutty. , they were dealing with 37 billion of debt ago, they were dealing with 37 billion of debt. Now 23 billion worth of net debt. Think for me what it emphasizes is that this actually is a company that delivers on its promises. To bet is always going exposed to the vicissitudes of the commodity cycle, but a year ago, they had this plan in place. They said they were going to reduce debt and operating costs and they have done exactly that. Francine the problem is, we do not know what, comes up next. We did speak to a Harris Associates cheif executive. Chief executive. Bit, isr is upa a below its normal, natural price. We think of this price, especially given how glencore has transformed itself from a Balance Sheet perspective, glen court offers glencore offers excellent opportunity despite the fact it is up 100 since its lows. Francine do you agree . What do they do next . Paul he is a man after my own heart. It is a point we have made a number of times. If you look at where fundamental longterm, the most important for glencore, the price required to get an continue to maintain supply is significantly higher than what we are seeing at the moment. And were still dealing with the shortterm fear over supply growth coming onto the market in the next year. The longterm fell value is higher. Glencore is usually levered to that. Whta next . What next . We will see an expansion and copper production and the share price will move higher. Tom help me with the mining industry. You took theoretical physics at cambridge. Help me with the inertial momentum enforced. Is the vector up for mining now . Are we finally at about . Paul yes, we are. Hindsight is a wonderful thing. But if you look at the way commodities trade and you look at some of the key metrics around what determines fair value and the sector, it was in december of last year that we hit rock bottom. Course, that characterize the lows not just for glencore but also for the rest of the mining names. Since then, yes, what we have seen is stabilization across the board and recovery and certain elements of the deck. Things like zinc helped by production cuts. Have rebounded very strong. Ore and coal is up. For me, it does point towards recovery. Tom paul gait, thank you so much with bernstein on mining. Oning up, David Malpass jackson hole. Mr. Malpass in support of mr. Trump. We will talk to David Malpass about this amazing president ial campaign and trumps economics. From new york and london, this is bloomberg. Hey hows it going, hotcakes . Hotcakes. This place has hotcakes. So why arent they selling like hotcakes . With comcast Business Internet and wifi pro, they could be. Just add a customized message to your wifi pro splash page and youll reach your customers where their eyes are already on their devices. Order up. Its more than just wifi, it can help grow your business. You dont see that every day. Introducing wifi pro, wifi that helps grow your business. Comcast business. Built for business. Tom good morning. Were thrilled you are with us. First word news. Taylor center italy has been rocked by a earthquake. The magnitude 6. 2 earthquake was centered 27 miles from the town of rietti. Crews are searching for victims and survivors. The italian Prime Minister renzi moments ago thanked the rescue willrs and announced he visit the earthquake area this afternoon. Toplevel talks on ukraine are set for next month. Vladimir putin will meet with the leaders of germany and france at septembers g20 summi t in china. Ofaine accuses russia supporting rebels in the region. The most expensive u. S. Weapon system ever is still coming up short, according to a memo. The pentagon says the Lockheed Martin 5 program is real the deficiencies. Problems involve software, electronic where for any use of weapons. The next president will have to decide whether to move the jet full production. In south africa, the embattled finance minister is determined not to step down. There is a report that gordon has been ordered to report to Police Investigators tomorrow. There are allegations that gordon oversaw an illegal unit set up to spy up on politicians when he ran the state tax agency. A person from the with the matter says gordon will not quit. Dayal news 24 hours a powered by more than 2600 journalists and analysts in 120 countries, this is bloomberg. Francine i wanted to bring you a South African rand chart. This currency has seen significant pressure. This reminds for the moment allegations, we do have this investigation, police unit. It is the best of the best in south africa. They are called the hawks. They want to question the finance minister. It is very clear by talking and looking at Research Notes that the worstcase narrow would be an arrest or replacement of the finance minister. Some severe market reaction. This has been the u. S. Dollar for five years. Absent downs, but he is seeing saying, the South African finance minister, as a safer bet. Tom very good on south africa. Lets get back to Dominic Konstam of Deutsche Bank. He has been way out front on financial repression and real rate returns. Bring up the chart. Dominic, this is the chart our viewers know. This is the 10year yield less the the cleveland cpi, a higher rate of inflation that what central bankers the duration of financial repression has been jawdropping. Rossou expect like bill g it will be another eight or 10 years . Dominic it may not be that long but it certainly is a few more years, another five years. What will change it is the sort of fiscal response, which i think we will eventually get. Tom that is the second time you have brought that up. What is the urgency now a fiscal policy . Do central bankers go to jackson hole intellectually exhausted . Dominic where you are getting to know, the central bankers are kind of questioning the efficacy of their own policies. No one is going to suddenly say q. E. And negative Interest Rates are not going to work but they are recognizing the problems they create. And a choice will have to be made that if they want to go more intensely negative Interest Rates, in japan and europe and the u. S. , if it had to cut rates, would have to consider things like that, that theres a challenge, the Financial System as we know it. And thats where politicians have to move. Of within your study economics and finance and investment, have you ever seen an successful experiment of re flation . Dominic there are examples an policies were esian effective keyn policies were quite effective. There is no free lunch. I think the idea is it is all about redistribution and who you redistribute from and to. And right now what financial repression is doing is it redistributes from the favors, towards this savers towards the spenders. When the savers control the ballot box, that is very painful. At the end of the day, the alternative is dragging people out on the streets and having riots. You have no choice. I think it is all going to be about that register but if redistributive thing. Inflation is very redist ributive. Francine if we spent two seconds on inflation. I know it is because the Central Banks mandate at 2 , you can also argue we are the little bit of the sweet spot where companies do not have actually have to raise wages and we feel richer. The problem is we do not want to spend it because of whats going on around us. Does inflation need to go up . Dominic well, i think if you take any system that has debt in it, inflation is a very nice way of getting rid of that debt quickly. In context of financial repression, the people who own the debt are not going to like it but that is another version of redistribution. The quicker way of getting inflation up. Getting inflation up is not easy. Helicopter money is probably the quickest way. That in in itself has all sorts of political connotations. In some countries it is outright illegal. Francine will we see helicopter money in some shape or form in our lifetime . Dominic your sort of seeing it now but people do not want to call it that are japan is a classic case where theres no way they are paying back all that debt to the central bank. So there will be ways in which it will be rolled indefinitely. We have the 0. 2 perpetual concept it tom want you to jump on o in on the shock of productivity. Global productivity down. Is this a new globalization . Is it a new diffusement of technology . Dominic its possible. We have always been very pessimistic on the pot productivity start. Im stunned how badly it continues to evolve. Tom do you have a y. Bring up my chart of the year. Dominic some people keep going on about measurement. It is not about measurements. Tom thank you. Dominic obviously, there may be elements of measurement, but it is really to my mind that we are over employing a lot of people relative to the investment that is taking place. And by definition, that hurt productivity. So, the question is is it really Investment Technology problem or is there something about riskreward companies see that they would much rather go to over employment . Maybe they do it because they think demand will be stronger. It is almost a demandside problem. Lotss no clear, there are of possible answers but nothing definitive you can say this is definitely the case. All we know is productivity is really bad. Tom there is the synthesis we have got to productivity in the idea of the Financial System buttressing up against classic economic analysis. Dominic konstam, we will continue this discussion. Between konstam and David Malpass. I think we can do a 10 hour surveillance today. No, David Malpass on trump economics. Well do that next. Bloomberg surveillance. As is bloomberg surveillance. Alix is on set in new york. What you have coming up on the show . Alix it is going to be hard to top any conversation youre happy with dominic. Well talk about what might disrupt the stock market and talk about fomo, the fear of missing out. Well be joined by dan suzuki of bank of america. Saying 21 reasons to be bearish. They have been bearish for a while. Nonetheless, we are going to be delving into those parts and why aat is the cased headed into potential dovish yellen. Tom fomo is when im stuck in radio and i cannot go to the set. Alix and we are partying on set. That is fomo. Tom you read dominic and David Malpass all weekend. Every other asset is go to cash. How are you going to address this mania. Tumrump, the world is going to end, go to cash. Alix where do you go because you do have the defensive at high valuations and have outperformed and some parts the first half of the year. Also, glencore, one of my favorite topics. Tom go away, commodities. Alix ed morris will help us break down zinc and copper and oil. Hes lowered his forecast for the third and fourth quarter. Tom Dominic Konstam with us. David malpass with us. Mr. Malpass stops the Economic Club of new york meetings when he asked pointed economic questions. He is now asking pointed economic questions to mr. Trump. An economic adviser to mr. Trump. Are the you the only non billionaire on the board . David you do not know what im worth. There are a lot of people with money involved but they want to see the country do better. I think people that have been successful in the campaign. Tom i get that youre a tried and true gop member. Is this guy listening to David Malpass . David what mr. Trump is looking for his ways to get things change. I dont know if he saw his speech last night but he was talking about the desperate need for change. You have seen a string of policies come out that change the direction in a positive way. Tom may i suggest that that lack of change spans both parties. We can take it back within democratic administrations and the Bush Administration and say it is a primal scream against the entrenched elite. What is the malpass prescription. Keep it under two minutes. David this is a forbes article from 2013. Corruption scandals rock big government. Th solution is clear, to have less power centralizede in washington. The lobbyists, the special interest control. That is why the Hillary Clinton scandal this morning, they are coming out every hour of what her email said and how that was an attachment to power. People were making contributions in order to get meetings with her. Thats really bad. That is not unusual in her, in the way theyve operated so, that is part of the change that has to be completely redone with less power. I spell it out in that article that you have got to have ways the businessic and interests are not so desperate to have meetings. Francine david, healthy understand help me understand. Tom let s have francine jump in. Francine donald trump is an antielite phenomena. At the same time, but he is elite. There is fear and hatred that he says with in a quality which may be justifiable but he is cutting tax for the rich. How do the two marry each other . He is cutting taxes for everybody. A key part of business tax cuts. What the economy is crying out for is more Business Investment. Why are businesses not investing into the economy and it is because the tax rates are too high, the regulatory pressure. He proposed specific solutions to that problem. A lot of it has to do with having washington be less powerful in the sense of expansionism. What washington has been doing for all these years and getting rich on it is controlling the business climate. That has got to be wound down. Francine david, what advice do you give to donald trump . In europe, what i get as the most because i work for an American Company is does donald trump flipflop all the time . Can we trust him as u. S. President . Are you 100 sure you can trust him not to change strategy . David yes. Flipflop is not the right way to look at it. He said from the beginning he is flexible. That is how you do business deals. You go in with an aggressive position and you modify the position as you get toward tom come on, you cannot modify a wall across mexico. Come on. This is outside what youre doing with economics, but francine in london and francine in sioux falls looking at a wall, do i vote for this guy . Go ahead. David think about the brexit vote. People wanted to change immigration policy. The government would not do it. So, they voted. Tom that is the global influence. Bring up this chart. 4ckey says we are going to. 0 unemployment. That is the green circle. The white circle is when president obama came in. Cant the president take a victory lap on job formation . David absolutely not. The Participation Rate is low. You are getting an artificial unemployment rate. It is the people lucky enough in the system that are showing up as not tom bring this chart up again. Donald trump has set into not nail me with the details, he says he is going to generate a 4 economy, 4 real gdp. How . Business having more investment and more people working. It has been done over and over again. We went to an 8 growth rate in the reagan administration. A 7 growth rate in the Bush Administration. Tom Dominic Konstam, does more t Deutsche Bank and vision a 4 economy . Dominic either candidate, no. You think there will be more Business Investment under a Trump Administration . That is myavid, question to you. That is where i was going to go with this but international investments. Has donald trump spoken to any International Investors outside of america that would support his presidency, that would do trade deals . David wait. He is a Big International investor himself, so hes spoken to lots of International Investors. Discussingng we are willether a tax rate cute cause more Business Investment. We know it does every single time. Hillary clinton is saying she is going to raise taxes. The economy has been start the Business Investment. Thatsin in the productivity weakness we have been seeing. Francine what about finance ministers . There is also a perception, which is fairly worldwide, that donald trump insults his allies. How do you do business if you insult france one day, china the other . Vid one problems is lots of the countries and their finance ministers are part of the elite. They have been in office for a long time in world growth is going down and down. Somehow, the u. S. Or trump has to get across a people we are going to have massive change that causes growth for the middle class. Median income is going to go up. There will be a flood of Business Investment, the way you get that is to lower tax rates and much faster growth. Tom lets go to a thought from wilkinson from bloomberg view. Change is coming. The american working class will be majority nonwhite. A decade earlier than the population as a whole. White males will have to learn to share the big tent. Trumps racially polarizing campaign and celebration of crude will make that more difficult. You have got to dovetail what everybody greatly respects in you which is Global Economics with a lot of ugly stuff. How do you do that . David [stammering[ you push back against phrases like racially polarizing. What he is doing is going to unify by bringing up the bottom. What is happened is the polarization that has been going on now is huge numbers of minority workers left out of the labor force. They dont get counted as unemployed. And thats got to change, the way you do that is to get Small Businesses creating jobs. We have Small Businesses basically almost shut down by historical standards, because of the taxes, the regulation, the energy policy. Hes proposed fixing those. Tom we will continue with David Malpass on bloomberg radio. Thank you for your public service. For what you did running for office in new york and assisting on this president ial campaign. The politics drives forward. Tonight, halperin, heilmann. Watch with all due respect. Tom foreignexchange report. Eyyen 100. It has not botched. I hasnt budged. Mexico has weakened over the last 48 hours. Francine we need to talk about brexit and linking it to the london. F when you look at the future of london, when you look at bankers, it is very unlikely if the u. K. Does not go back and immigration it will still have that what will london become 10 years from now . Dominic i think once and still be the Financial Center of the world more or less, as long as they keep the portion right. What we are learning postvote is that brexit is hard to achieve quickly. And a lot of people who have nkpported brexit, i thi probably beginning to disagree as to what vision they have. The longer the inertia, my guess more optimistic that it is not going to be quite the catastrophe, the renegotiating that might have otherwise been the case. Tom you have got a great perspective. If they leave london, where they going to move to . Dublin . English for the speaking side, you raise things like that, but i remember in the days when thatcher was been a around the big bank, the french and germans were fighting over the spoils. Tom who wins . Dominic they were probably end up splitting it. The french seem to be more regressive. Than the germans, historically police in term historically at leat in building up the Financial Center. It would be crazy for the city of london and the British Government to let that one get away. It is just unnecessary. I think london, im with you. I would be optimistic unleaded. The currency will do a lot to help stabilize asset prices in the u. K. I think overall that we will be fine. Tom Dominic Konstam, thank you so much. We continue with David Malpass on radio this morning. Francine, renzi will speak at some point, correct . Said no onenzi would be left alone. A powerful earthquake hitting central europe, 38 people dead. Tom thank you. Lets look at the data right now. Looking at the vix 12. 34. Worldwide, this is bloomberg. Glencore theres of biggest decline in two months after firsthalf profit tumbles 66 . Alix ems falling the most in three weeks. Jonathan from fear to fear of missing up. The economy appear susceptible to a pullback. Welcome to bloomberg. David westin on occasion on vacation. The message from the Market Release the speech. It seems to be the only thing everyone is waiting for. Alix release the speech so we can get some direction in the market. Yesterday you had that weakness. Now no one knows where the dollar is headed. Some currency stronger, some of are weaker. We have got a get something going. Jonathan stocks go nowhere and trading range is high